MALAYSIA's current energy shock is unlike past crises, striking not only oil revenues but also vital supplies like fertiliser and plastics. The ripple effects, following the Strait of Hormuz's blockade, are already visible in packaging, farming, and food costs, exposing vulnerabilities that subsidies alone cannot fix.
> How is this energy shock different from the ones Malaysia faced before – and why can't PETRONAS cushion the impact the way it did in 1979?
So unlike the crisis in 1979, the crisis that we're facing now is not just an oil crisis, it's
also a supply crisis. So in 1979, PETRONAS was able to cushion the fall, cushion the shock that we're facing.
The actual problem that we're facing right now is that a lot of industry inputs in our economy depend on items from the Gulf. So naphtha for plastics, urea for fertiliser and such. So the simple way I would put this is that PETRONAS can cushion the revenue problem, but it can't cushion the supply problem that we're facing right now.
So, right now, households are still going to feel the supply side problem, so they're going to start seeing that their food packaging will change. They will also see price increases for certain things, but businesses will face the sharper end of the stick. Businesses will start seeing that their fuel for industrial use, their urea for fertiliser, it still will still follow market price. So they will face the bigger brunt of the crisis.
> Are we feeling the pinch right now?
Right now? Yes, a little bit. So, we have start seeing that (dairy producer) Farm Fresh has already changed their packaging from bottles to cartons. And we have started to see that, at least on the business side for let's say plantation owners and perhaps even vegetable farmers, that their fertiliser prices are a bit higher now. And that's going to affect maybe consumers six months down the road when they start seeing that after this first planting cycle, prices might go up for vegetables and even chicken feed.
Six to 12 months, six months at the earliest. That's the number I would put. The main change would will be prices because a lot of these inputs, they enter into our supply chains and the shock will travel to the economy. Then six months down the road we will start seeing our daily items would have price increases.
> What will happen if a full-fledged war breaks out? What is the key measure for the Government to help people brace?
If a full-fledged war breaks out, then the shock category would change. Oil prices would be higher for a longer period of time. Households and businesses might shape expectations of what prices will be. And I think the fiscal or the financial position of the government becomes a bit more precarious.
> Conversely, will things improve immediately if a peace deal is reached?
So, even if immediate or so even if there is a peace deal, the infrastructural damage has already been done. We can take Qatar for example. Iranian missiles have hit the Ras Lafan LNG complex, which is the largest liquified natural gas (LNG) complex in the world. And Qatar Energy has already mentioned and said to us that the repairs for these kind of facilities would take a year or two.
So there's no peace deal that can shorten (the time needed for) those repairs. We should see supply disruptions even in the coming year. This crisis won't go away (that quickly).
> The government's subsidy bill has ballooned from RM15bil budgeted to nearly 58bil projected. How sustainable is this approach, and what alternatives could protect people without exhausting public finances?
So I will be cautious about framing this of whether it's sustainable or not, because there's no risk to insolvency. The Malaysian government can pay for it. But I guess the larger question is that every ringgit that we spend on subsidies is a ringgit that we're not spending on healthcare or education. And I think that's the larger conversation that Malaysians should broach on.
It is a sensitive conversation because the ideas being put forward is necessarily about making decisions and trade-offs between parts of society. So is the recent proposal is for T20 households to not get Budi95. That's an active choice and that is actually actively a political choice. And I think that's a conversation that Malaysians as a society should start having. And unfortunately we're not.
> Malaysia's refining sector is where Gulf oil first enters, while industries like livestock only show their vulnerability once you trace the supply chain. What does this contrast reveal, and how should policy address it?
One thing it has been revealed to us is that we can guard the door but the trap might come in through the window. Vulnerability might pop up in places where we would never expect. I think a great example (to illustrate the matter) is chicken. Right? Urea goes into fertiliser, fertiliser goes to feed, and feed goes back to chicken.
And (when it comes to) policy, I think should follow the same logic. We should identify where shortages occur, where it might cause the main damage and then we should start thinking about how to mitigate that.
> Is there a connection between the current vulnerability with the current issue of rising food cost?
If you're talking about the fact that food costs have been rising for the past like five to 10 years, that's a separate supply issue. That has to do with the fact that Malaysia is very vulnerable to imports from overseas on urea and all that. And global prices of urea are very uncertain. They go up and down every day or so. And that uncertainty feeds into the cost for Malaysians.
But for the current situation, I think Malaysians have yet to feel (despite) for example, the urea and fertiliser price increase has been around 80%. Malaysians haven't felt that yet. However, that's coming and I think Malaysia should probably come to prepare for that soon.
> When will we actually feel that?
It's hard to imagine the immediate number. The main reason being is that when fertiliser goes into, let's say, the planting cycle, and then that would take, we don't know how long it might take to travel to shelves. So right now, a lot of companies might want to gain an upper hand against their competitors by trying to burn through their current stocks. So different companies will have different abilities of doing that and putting an exact number where everyone would not be able to burn through the stocks and would start jacking up prices, that's still uncertain. And that's probably a lot. That's probably private information for them as well.
(Furthering explain on the time taken for food prices to take effect) I think it would take time to travel because is happening very high upstream. For example, if it's at the fertiliser level. How long does it take for vegetables to grow? And that is exactly the time it will take, for example, so that batch of vegetable will be influenced by the price of fertiliser at the time of planting. So if it takes four months to grow a cabbage, then four months might be the time it takes for that price to show. And there's also a little bit of manufacturing time involved. So that's why the number people agree on is around six (months).
> Ordinary Malaysians are shielded at the pump but still feel costs creeping in through food and packaging. What should households and small businesses do to brace these indirect shocks?
There's a tendency to over attribute what households can do. And I want to be honest with that. This is not a problem that households can fix.
But granted, there are active steps that households and businesses can do. Households maybe can start thinking about protein diversification. A lot of the Gulf exposure will affect things like chicken and red meat. Households can probably start thinking about what kind of fish they like or what kind of plant protein they might want to supplement their meals.
For businesses, again, they're also vulnerable and kind of helpless with regards to what happens because our businesses can only map their supply chain and try to understand where they're exposed.
So I would attribute a lot of the responsibility to policy rather than to households and businesses, because a lot of the exposure that they're experiencing are going through places and channels where households and businesses have no control over, like fertilisers and naphtha for plastics.
> What measures can be implemented effectively in the medium- and long-term, to prepare for oil shocks and other supply chain disruptions?
Since we're in the crisis, there's not really a lot of space to build buffers. I think the immediate structural thing that we should think of is "triage" – identify where critical inputs are and where a shortage of these critical inputs would hurt the most households. Then try to help businesses to replace whatever is needed. We can start thinking about emergency procurement channels. Government procurement channels use trade diplomacy to try to acquire the things that these firms might need.
> Some have suggested promoting consumer behavioural change – buying local, recycling. How effective are these actions and how far can they go?
I think buying local can matter. But I'll put a caveat that you can matter at the margins rather than as a strategic response to this crisis. Buying local can work for a lot of supply chains that are completely domestic. For example, in a country, you might imagine that ayam kampung would have chicken feed that is grown domestically. You might have local fish that are grown domestically. All of the supply chain is grown domestically.
So that's a great example. Buying local can work. But I would still consider it at the margin rather than as a strategic response to our situation right now.
> Is it something that we should look at?
Yes. I think in the long term we should start thinking about domestication of these kind of supply chains. The current challenge right now is because a lot of the chicken feed that are soy and corn and these things don't grow naturally in Malaysia. Perhaps there could be research towards building, finding new ways to feed chicken or feed a lot of the domestic livestock.
> How can policymakers communicate clearly – distinguishing a temporary external shock from long-term inflation – so people understand risks without panic?
Content wise, I think when it comes to communication of this crisis, we should be very careful about separating the temporary versus the structural.
So oil prices increasing, we've seen it before and that's just a price. There's a price event and it's temporary. But like shipping insurance going up as a result of the Hormuz crisis, that structure for the foreseeable future because, for example, it might take until January 2027 before they revise that (insurance coverage).
Helping people share expectations when it comes to their businesses and households, that's important. And I think Bank Negara and the government should do a bit more when it comes to communicating what's temporary and what's structural.
But form wise, I think it's important that we name the policy choices and why, especially for the government, when we name the policy choices, we also have to communicate the problems behind the policy choices.
And I think that's important. Understanding why you choose that response will also help people have a conversation around it. I think also that we need to be specific. When the government goes out and tells us about what we should do, they should be very specific. Vague reassurances only feed anxiety. I think being specific builds credibility.
> Some people, tend to respond with cynicism for whatever the government is saying.
I think that's just one part of it, that we should take that as feedback about how people feel about the crisis. That could just be a reflection that people don't understand completely the specifics about what's being done. So right now we can see that Nurhisham (Prime Minister's Office senior director for economy and finance Nurhisham Hussein who has been explaining matters related to the Hormuz shock) is doing a lot of things, but some people might feel that 'we want to understand more'.
> Why is it important for people to be fully aware and understand the risks?
There are three important reasons. So one is that panic buying and hoarding, it stresses the supply chain further. It's important that people can shape an expectation about what the crisis is because we're nowhere near the place where we should be panic buying or we should be hoarding.
Secondly, the reforms that we need right now, to become perhaps more suitable for future crises, are politically costly. For example, targeted subsidies. It requires public support, it requires political support from the public that is willing to forego short term discomfort to gain long term, let's say, for a long term advantage.
And (thirdly) I think the most important thing is it's just (the people's) dignity. I think people need to be very aware about what they're at. We should treat them as adults and empower them with whatever information that we have. Otherwise the trust deficit with government is only going to grow larger. Worse trust will always create worse politics and worse politics will always create worse policies.
> Asean economies show different types of exposure. What regional cooperation do we need?
Different countries in Asean face different exposures. So Thailand and Malaysia are occupied with the fact that they're refining hubs. Singapore is occupied with the fact that they're trading networks. Cambodia and Laos are worried about how the exposure from Thailand.
Seeing that there are different exposures, there's no real one common policy for all. But there is one thing that we could do, which is that we should have an early warning system, an early warning system for all Asean countries that would help facilitate, say, sharing agreements. Also have an understanding about which countries are going to reach exposures. Asean supply chain right now is already regional, so the policy response should also be regional.
> What structural reforms are most urgent for Malaysia?
I think identifying critical inputs when it comes to mapping (is crucial). So a great example is how currently in our ongoing crisis that we're using a lot of the supply chain mapping that we utilise during Covid-19 pandemic. So having this experience will also help us in the future. And I think in the long term we should think about for firms to diversify their suppliers, have some rules in place about what level is concerning, what level is not.
Right now we're discovering things like 70% of our imports of this specific product (for example) is coming from Hormuz. And I think that means that we should start thinking about diversifying suppliers, at least to help these (importing) firms. In the long term, we can have the macro conversations about green energy and to bringing some of these supply chains home to Malaysia.
> How viable is palm oil-based biofuel as a strategic alternative – considering energy security, sustainability concerns, trade pressures and the risk of over-reliance?
I have two concerns about thinking about palm oil biodiesel as one, one for the current (crisis) and one for the for the future.
The first thing is scale. Palm oil biodiesel will only replace some uses of fuel. It wouldn't be able to replace aviation fuel and it won't be able to replace urea for fertiliser. So the scale of that as a response (to the current crisis) might be limited.
And the second, is the risk of concentration risk. Palm oil is already an essential export commodity and it's already important for rural incomes. So if you also want to build energy security with palm oil as a pillar, then you're concentrating a lot of Malaysia's security on this one commodity. So might not be the wise step forward, but it will be useful at the margin.
(To a question on current efforts to lessen dependence on fossil fuel) the most immediate has been hydroelectric, but we know that it's, it's very capital intensive and it also has a lot of environmental precarities as well.
Solar is becoming cheaper by the unit, but whether we can deploy it en masse is also something people are trying to figure out. I think the most immediate one people are exploring are nuclear reactors, at least small modular ones.
> Are there any economic opportunities for Malaysia – anything that can cushion our pain or be built on for later growth?
I think everyone's response to this crisis will be diversification and redundancy. We can hope that redundancy will have Malaysia involved in the picture. So Malaysia has refining capacity, which for example, the Australian Prime Minister came to Malaysia precisely for this. So it might be a hit tailwind for us in the future as this crisis subsides and people think about, well, where else can we get our refining capacity building Malaysia?
> What are SEAFIC's other policy recommendations – short-, medium-, or long-term?
Malaysia already has monitoring capacity. So first recommendation is a critical input playbook. Start thinking about when we have the next crisis, what's important, what causes the most damage. What requires the aid, what requires help first.
And then second is start thinking about formal emergency procurement channels and consider trade diplomacy for example, to help firms diversify.
I think thirdly, set priority rules. Set priority rules before shortages appear. Understand that for example, start mapping out things try to avoid cases like Farm Fresh where they would have to immediately change their packaging to carton from bottles.
